Enterprise Policy Responses to COVID-19 in ASEAN - Measures to boost MSME resilience
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Policy Insight
Enterprise Policy
Responses to COVID-19
in ASEAN
Measures to boost MSME resilience
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Policy Insight
ENTERPRISE POLICY RESPONSES
TO COVID-19 IN ASEAN
MEASURES TO BOOST MSME RESILIENCE
PUBE
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Table of Contents
Overview of key findings........................................................................................................................ 5
1. Introduction ........................................................................................................................................ 8
1.1 World leaders are faced with the biggest global crisis in generations ............................................ 8
1.2 Impact on firms: Businesses will face extraordinary stress, particularly MSMEs ......................... 9
1.3 Impact on ASEAN growth and economic integration .................................................................. 10
2. Overview of enterprise policy responses in ASEAN ..................................................................... 13
2.1 Shorter-term stimulus measures .................................................................................................... 14
2.2 Longer-term structural measures .................................................................................................. 16
2.3 An overview of sector-specific measures ..................................................................................... 18
3. International policy learnings and suggestions on ways forward ................................................ 21
3.1 Shorter-term stimulus measures: Particular considerations .......................................................... 21
3.2 Longer-term structural measures: Particular considerations......................................................... 24
4. Addendum: What can businesses do to find pathways out of the crisis? .................................... 27
References ............................................................................................................................................. 31
Annex A. Policy responses by country ................................................................................................ 33
A.1 Brunei Darussalam ....................................................................................................................... 33
A.2 Cambodia ..................................................................................................................................... 35
A.3 Indonesia ...................................................................................................................................... 37
A.4 Lao PDR....................................................................................................................................... 40
A.5 Malaysia ....................................................................................................................................... 41
A.6 Myanmar ...................................................................................................................................... 44
A.7 The Philippines ............................................................................................................................ 45
A.8 Singapore ..................................................................................................................................... 48
A.9 Thailand ....................................................................................................................................... 51
A.10 Viet Nam .................................................................................................................................... 534|
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Overview of key findings
The world is currently facing the biggest global crisis in generations, caused by the sudden
and rapid spread of a novel coronavirus. The global economy appears to be experiencing
its deepest recession since the 1930s, with many countries undergoing a GDP decline of
over 20% and a rapid surge in unemployment (OECD, 2020). All ASEAN countries have
revised their growth forecasts downwards, in some cases substantially – Indonesia, for
instance, has revised its forecast from 5.3% growth in 2020 to 0.4-2.3%, whilst the
Philippines’ forecasts -0.6%-4.3% in 2020, from 6.5-7.5% originally (ASEC, 2020).
The lockdown measures introduced by many governments between March and June 2020
were necessary to curtail the spread of the virus, but they have also halted business activity
in many sectors, disrupted education, placed stress on many channels of global
connectivity, and undermined confidence. These outcomes have already widened
inequality, disrupted financial markets, frayed supply chain connectivity and caused deep
and broad economic hardship in many countries, including those in Southeast Asia.
Many governments have stepped up and rolled out rapid and substantial policy measures
to tide businesses, households and institutions through the crisis. The fiscal price tag is
almost unprecedented – in the US, Congress recently approved a USD 2 trillion stimulus
package, whilst in Germany, an emergency “supplementary” budget of EUR 156 billion
for 2020 has been passed. The same is true in ASEAN, where the budget for stimulus
packages can run as high as 12% (Singapore), 10% (Thailand) and 6% (Brunei Darussalam,
Cambodia and the Philippines) of GDP (CSIS, 2020).
Whilst strong fiscal support is merited, it will have consequences and should be carefully
managed. The OECD expects the median debt ratio of its member countries to increase by
almost 15% of GDP in 2020 in the event of a second outbreak, and to continue rising in
2021, reaching around 87% of GDP (OECD, 2020). In the event that the virus is brought
under control, the median debt-to-GDP ratio will rise by only slightly less. Similar trends
are expected worldwide, including in ASEAN. The situation may be particularly
challenging for emerging economies, who are less likely to absorb the fiscal costs and more
likely to face binding constraints to borrowing on international markets.
Governments should therefore ensure that debt-financed spending is measured and well
targeted. Interventions should be steered towards the most vulnerable and ensure the
investment necessary for a transition to a more resilient and fair economy. Such measures
should include accelerated efforts to modernise taxation, public spending and service
provision, social protection systems, and to make competition and regulation smarter.
A pivotal part of this policy support will be to ensure that businesses can navigate the crisis.
Many will struggle to weather it, and those that do are likely to undertake sizeable layoffs
and defer investment. The confinement period was particularly challenging for firms, and6|
compounded by uncertainty. Many businesses have loaded up on debt in recent years (BIS,
2019), and few have a clear picture on how the pandemic will affect their business
operations over the coming months and years. MSMEs, which tend to have fewer internal
resources and more limited access to information, are likely to be particularly affected. This
stress is likely to disproportionately impact economically vulnerable communities, who are
much less likely to be employed in large enterprises. Surveys suggest that roughly two
thirds of ASEAN MSMEs had less than two months’ worth of cash reserves left in early
April, whilst over a third expected to lay off over 40% of their staff (AMTC, 2020).
Many policy measures have therefore been targeted at supporting enterprises. These
measures include a mix of shorter-term stimulus measures, as well as longer-term structural
policies – aimed to build a “new normal.” This is true in ASEAN, where comprehensive
packages of policy measures have been rolled out, ranging from deferral measures, direct
financial assistance and information provision (shorter-term measures) to support in
training workers, digitising, accessing new markets and formalising (long-term measures).
Going forward, this report proposes a number of considerations for ASEAN:
• Ensure that policy responses combine shorter term stimulus measures with
longer-term structural ones. The COVID-19 crisis has pushed both policymakers
and enterprises to rapidly adapt to new ways of working as well as new and
emergent challenges. It is clear that fallout from the crisis will last many years, and
thus policymakers may do well to consider measures that would boost enterprise
and economic resilience over the longer term, alongside shorter-term crisis
management measures. This approach may reduce drag on public finances over the
long run, and provide a fillip to build up smarter and more inclusive economies.
• Design targeted measures for MSMEs. MSMEs will play a pivotal role in
emerging from the crisis. First, they form the fabric of most economies, and so
large scale bankruptcies are likely to have a deep and long-run impact on the
economic machine. They are also likely to be more vulnerable – tending to possess
fewer internal resources, they may be less able to weather liquidity gaps and rapidly
adjust their business models, working methods and marketing channels. This is
particularly the case for traditional enterprises, which constitute the vast majority
of MSMEs. However the grouping also includes a small number of firms that can
use their small size to innovate and adjust more quickly than larger firms. These
firms may play a second role – helping to develop innovative and rapid solutions
out of the crisis. As a result, dedicated programmes for MSMEs (rather than
general business-support schemes) may be necessary to keep the economic
machine running and ensure that it is as dynamic and adaptable as possible.
• Pay close attention to the delivery and performance of support schemes. Initial
feedback from a number of countries has suggested that many enterprises face
difficulties accessing government support schemes. Many of these difficulties arise
from the fact that governments are not used to acting rapidly at scale. In France,|7
for instance, a large number of enterprises applied for wage subsidies during the
lockdown period, but approvals were significantly delayed, causing great
uncertainty for businesses, particularly smaller companies. Others may be caused
by inattention to pre-existing restrictions and policy coordination. A number of
guarantee schemes have been rolled out, for instance, that fail to consider the
standard reporting requirements and other operational procedures of banks, thus
rendering the guarantee ineffective; unable to address firm financing constraints.
• Consider accelerating efforts to encourage enterprise digitalisation. ASEAN
meetings on the COVID-19 response have repeatedly highlighted the importance
of digitalisation as a pathway out of the crisis. The Special ASEAN Plus Three
Summit on Coronavirus Disease 2019,1 for instance, highlighted the need to
leverage digital technologies and digital trade to allow businesses, particularly
MSMEs, to stay afloat during the crisis. With physical stores closed and potential
clients locked at home, online platforms have been the only recourse for many
enterprises to continue functioning. Many MSMEs have been slow to digitise,
however, due to an array of factors; including, but not confined to: limited access
to fast and secure broadband connections, weak payment systems, frayed logistical
infrastructure and services, and weak legal frameworks governing cybersecurity,
and consumer protection. Scams and phishing campaigns, generally linked to
COVID-19, have risen during the crisis.
• Take social considerations into account. MSMEs represent between 52% and
97% of total employment in AMS, and thus are an important source of livelihoods.
They also tend to be more vulnerable, as are their workers – studies have suggested
that an own account worker, and their family, may fall below subsistence level in
many countries should they be obliged to forego income for just one week.
Policymakers should consider how to effectively engage with more vulnerable
actors – for instance those individuals and firms operating in the informal economy
and/or those located in rural areas – and ensure they take up the schemes available
to them. In many cases, this will involve engaging with social and solidarity
economy players such as CSOs and social enterprises. This may particularly be the
case in more remote areas where the central government has reduced reach.
• Consider measures that target the most deeply-affected sectors. A handful of
sectors have been particularly hit by the crisis, and these have tended to be
traditional sectors where MSMEs are highly represented. These actors are
generally less likely to innovate, but they are essential for the provision of services,
as well as the production and distribution of goods, for proximity markets.
Comprehensive packages, that take a holistic approach towards the recovery of
otherwise-healthy sectors, should be considered.
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Which took place in April 2020.8|
1. Introduction
1.1 World leaders are faced with the biggest global crisis in generations
Almost every country in the world is currently fighting to curtail the spread of COVID-19,
a highly infectious respiratory disease that has already infected 8.99 million people and
claimed over 469 000 lives worldwide (WHO, 2020).2 The disease has now been classified
as a pandemic, and there is little clarity on how and when humans will acquire immunity
to the virus at scale.
Since COVID-19 is caused by a novel virus (Sars-CoV-2), humans have not yet acquired
immunity to the disease. There is also little clarity on when a vaccine or antiviral treatment
could be rolled out at scale, or for how long immunity would last once an individual has
been infected or vaccinated. In addition, the disease appears to spread particularly quickly,
quietly, and with far more devastating impact than other respiratory diseases such as Severe
Acute Respiratory Syndrome (SARS-CoV-1).
Faced with a rapidly deteriorating public health crisis, many governments put strict
containment measures in place. These measures have included nationwide shutdowns, with
many businesses being obliged to temporarily close and widespread restrictions on travel
and mobility. By 25 March 2020, as India announced a nationwide lockdown, an estimated
one third of humanity had been instructed to stay indoors.
The result has been a sharp and immediate decline in economic activity. The OECD has
estimated that the initial direct impact of shutdowns could be an output decline of one-fifth
to one-quarter in many economies, with consumers’ expenditure dropping by potentially
around one-third (OECD, 2020). This is far greater than anything experienced during the
2008 financial crisis. The global economy is now in the midst of its deepest recession since
the Great Depression of the 1930s, with many countries experiencing a GDP decline of
over 20% and a surge in unemployment (OECD, 2020).
Beyond the immediate and obvious impact on national economies, the pandemic also
threatens to severely disrupt international trade and investment flows. As the world’s
largest supplier of intermediate goods, strict containment measures in China have had a
substantial impact on supply chain connectivity. The United Nations Conference on Trade
and Development (UNCTAD) has estimated that the outbreak could cause a USD 50 billion
decrease in exports across global value chains (UNCTAD, 2020). Foreign Direct
Investment (FDI), meanwhile, is expected to shrink by 5-15% (UNCTAD, 2020), with
significant implications for capital development, particularly in emerging markets.
2
Data as of 22 June 2020.|9
The impact of the virus will not be felt across an entire economy evenly, but will place
particular stress on specific sectors and constituencies. The travel and tourism industries
will be particularly hit, but also those activities that rely on a high degree of client contact
and footfall, such as hospitality and leisure, transportation, and personal care service – such
as hairdressing salons and dentistry – industries. It is also likely to have a disproportionate
impact on “just in time” manufacturing, particularly those that rely on inputs sourced from
severely affected countries and regions. Those individuals and firms most at risk are those
without sufficient savings or cash and inventory stockpiles – and this will particularly be
the case in countries with only light social protection systems in place – as is the case across
much of Southeast Asia.
Many governments have announced stimulus packages to address the economic fallout
from efforts to curb the spread of the virus. They often combine a mix of fiscal and
monetary measures, and include tax deferrals, loans, grants and guarantees, furloughing
schemes, and emergency rate cuts. In many cases these have been sizeable – the US
Congress has recently approved a USD 2 trillion stimulus package, Germany has passed an
emergency “supplementary” budget of EUR 156 billion for 2020, whilst the UK has already
offered direct fiscal support of between GBP 39-50 billion. China has also announced a
slew of stimulus measures to support SMEs, for instance a new CNY 1 trillion (around
USD 141.6 billion) credit line for small and medium-sized banks, offering an additional 1
trillion yuan for them to lend out, to allow them to lend at a special rate and reduce their
provisioning requirements.
1.2 Impact on firms: Businesses will face extraordinary stress, particularly MSMEs
This shock is unlike others that have come before. As noted by Baldwin (Baldwin, 2020)
and others, its particularity is that it is striking the economic machine at multiple sites
almost in unison – rather than one site, say the banking sector, as we have seen previously.
Moreover, it did not start in one or two countries, but, rather, the economic shock is hitting
most G20 nations almost at the same time. Policymakers will therefore need to roll out a
raft of measures for many different actors – households, businesses and the financial sector
– to keep the machine running.
A very large share of the stimulus measures being put in place are targeted at businesses.
The shock is exerting a sharp pressure on their balance sheets, and this is exacerbated by
the fact that many businesses have loaded up on debt in recent years (BIS, 2019). Many do
not feel they would be able to survive an extended confinement period – in the UK, for
instance, five out of six firms believe they would be unable to survive a six-month
lockdown (BWCC, 2020). This precarious position is being compounded by uncertainty –
few businesses or consumers know how the public health emergency is going to impact
economic activity over the coming months. This has left many in a holding position,
delaying investments and purchases. Indicators of business confidence, such as purchasing
manager indices (PMIs), have all dropped sharply.10 |
The bankruptcy of one firm can also set in motion a chain of new bankruptcies, as these
firms lose important suppliers and buyers. For this reason, it is important for policymakers
to keep the fabric of their economies intact, at least as far as possible, over the emergency
response period.
MSMEs are likely to be particularly affected. These businesses tend to have fewer internal
resources and more limited access to information, both of which would help them to
weather this crisis. Many are to be found, meanwhile, in the sectors that have been most
affected – wholesale and retail trade and travel and tourism, to name a few. The heightened
risk of bankruptcy and unemployment especially for SMEs will disproportionately impact
economically vulnerable communities, and large-scale business and household loan
defaults could generate losses that could undermine confidence in the financial system.
1.3 Impact on ASEAN growth and economic integration
The COVID-19 pandemic poses great challenges for ASEAN countries, as well as for
economic integration across the region. All ASEAN economies are expected to experience
sharp economic slowdowns in 2020, on a par with the 1997-98 Asian Financial Crisis, or
perhaps even greater (CSIS, 2020). Growth forecasts for 2020 have been revised
downward, in some cases significantly. The IMF expects ASEAN-5 economies to grow by
-0.6% in 2020, whilst the World Bank forecasts GDP growth in ASEAN countries3 to range
from -0.5% to -5.0% in 2020 (IMF, 2020; World Bank, 2020).
Whilst most forecasts expect a strong rebound in 2021, the future remains highly uncertain.
The region faces a number of structural characteristics that may render it particularly
exposed to fallout from COVID-19. These include:
• The fact that most countries are highly dependent on international trade and
investment flows. Depressed demand and breaks in supply chain connectivity are
likely to particularly affect those economies that are most integrated into global value
chains. The region is particularly exposed to economic shocks in China – the country
is ASEAN’s biggest external trade partner and investor, accounting for 17.1% of
ASEAN’s total trade and 6.5% of its total FDI inflows in 2018, and it is tightly woven
into its supply chains (ASEC, 2020). International trade is expected to plummet by
between 13% and 32% in 2020 (WTO, 2020), which will likely have a broad and deep
impact on the ASEAN region (ASEC, 2020). FDI is also expected to decline sharply
in 2020, with reinvested earnings – an increasingly important source of FDI flows –
dropping substantially in the short term (OECD, 2020). This would compound other
financial difficulties facing ASEAN, which has seen a swift outflow of capital, with a
sharp drop in stock market value and a swift depreciation of exchange rates across the
region (Figure 3). Around a quarter of stock market value was wiped out in Indonesia,
Philippines, Thailand, and Viet Nam (ASEC, 2020).
3
Singapore is not included.| 11
• Most countries have a sizeable informal economy. A significant share of economic
activity across Southeast Asia remains informal. Informal employment is estimated to
account for around 75% of the labour force across the region, albeit with sizeable
differences between countries.4 This structural trait means that many businesses may
be unable to access policy support measures, and that many workers, who are unable
to access social security benefits, are particularly vulnerable to declines in income. It
also has a strong gender skew. Women tend to operate more frequently in the informal
sector than men, are more present as migrant workers, and tend to take on a greater
share of household and childcare duties. These are likely to have a significant impact
as firms begin to lay off workers, countries close borders, and schools close.
• Few countries have comprehensive social protection systems in place. ASEAN
countries direct a relatively small share of GDP towards social protection programmes
– around 6% of GDP, relative to 25% in Western Europe and 12.5% in Latin America.
As a result, relatively few workers may have access to social insurance benefits (for
instance, unemployment benefits and/or health insurance) that could help to tide them
through the crisis. Instead, civil society organisations (CSOs) may need to take on an
important role in helping to support workers and firms, and to signpost them to support
measures, particularly in more disconnected communities. In Singapore, for instance,
CSOs played a key role in providing support to migrant workers.
• Many of the region’s strongest sectors have been particularly hit by the crisis.
Many of Southeast Asia’s key sectors are particularly vulnerable to fallout from the
pandemic. The tourism and hospitality industry, for instance, which accounts for a
significant share of national GDP5 and foreign currency receipts in many countries, has
taken a heavy hit from international travel bans and other restrictions. Manufacturing
firms operating in the textile, electronics and automobile sector, many of which rely on
a “just in time” operating model, have had to slow or stop production, laying off
thousands of workers in the process. MSMEs engaged in global and regional supply
chains are likely to be particularly disrupted by these developments, as access to their
supply lines is curtailed.
Dialogue and coordination between ASEAN Member States will remain key to effectively
tackle the crisis and sustain the momentum of integration. In March 2020, following its
26th retreat, the ASEAN Economic Ministers (AEM) issued a statement calling for
collective action to mitigate the impact of the virus, with a particular focus on leveraging
technology and digital trade, as well as trade facilitation platforms to foster supply chain
connectivity and sustainability. This commitment to collective action is encouraging and
commendable. A month later, in April 2020, ASEAN Leaders convened the Special
ASEAN Summit on Coronavirus Disease 2019 (COVID-19). During the Summit, Leaders
4
Ranging from 10% in Malaysia, around 50-60% in Indonesia, Thailand and Viet Nam, and over
70% in Cambodia, Lao PDR and Myanmar.
5
Around 20%, for example, in Thailand and the Philippines.12 |
issued a declaration calling for the implementation of measures to boost confidence and
improve regional economic stability, including through policy stimulus, by assisting those
individuals and businesses suffering from the impact of COVID-19, particularly MSMEs
and vulnerable groups. ASEAN Committees are also stepping up to identify concrete
pathways out of the crisis. In June 2020, for instance, the ACCMSME announced the “Go
Digital ASEAN” initiative – a USD 3.3 million partnership with the Asia Foundation and
Google to equip 200 000 micro and small enterprises with digital skills and tools.| 13
2. Overview of enterprise policy responses in ASEAN
Most AMS started rolling out COVID-19-related policy measures for enterprises in mid-
March. Indonesia, Malaysia and Singapore, and to some extent Viet Nam, initiated
programmes a little earlier – at the end of February in Indonesia and Malaysia, the end of
January in Singapore, and early March in Viet Nam.
These measures were rolled out relatively rapidly, initially focused on managing the
immediate consequences of the crisis, and evolved over time – from shorter-term to longer-
term measures, and to more sectors of the economy. In many cases, policy measures were
directed first to the tourism, transportation, hospitality and food and beverage sectors, and
then broadened to other sectors. Early measures also reflected the structural characteristics
of each economy. In Indonesia, for instance, early measures were targeted towards low
income households, in Singapore, early measures provided business continuity planning
for enterprises and advice on good sanitation standards, and in Viet Nam, early measures
looked at ways to address supply chain blockages.
Table 1. Overview of enterprise policy responses in ASEAN
BRN KHM IDN LAO MYS MMR PHL SGP THA VNM
Shorter-term stimulus measures
Deferral measures Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
Direct financial Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
assistance
Information and Ѵ Ѵ Ѵ Ѵ
guidance
Wage support and Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
temp. redundancy
measures
Longer-term structural measures
Formalisation Ѵ Ѵ
Workforce training Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
Digitisation Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
New market access Ѵ Ѵ Ѵ Ѵ14 |
Sector-specific measures
Tourism & hospitality Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
Manufacturing Ѵ Ѵ Ѵ Ѵ Ѵ
Garments & footwear Ѵ Ѵ Ѵ
Aviation Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
Agrofood Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ Ѵ
As mentioned, policy support for enterprises has evolved over time to include a mix of both
shorter-term stimulus measures as well as longer-term structural measures. Through the
latter, governments are increasingly attempting to identify pathways through which they
can build more resilient and future-facing enterprises – and, in so doing, economies.
2.1 Shorter-term stimulus measures
Deferral measures
All AMS have offered deferrals for a range of social expenditures.6 This is intended to free
up enterprise cash flow and discourage employee layoffs. The scope and duration of these
measures vary by country, but were typically extended for an initial period of 2-3 months.
Over time, however, the scope of deferrals has increased – to 6-12 months in many cases.
In a number of cases (for instance Indonesia, Cambodia, Malaysia and Viet Nam) deferrals
have only been extended to specific sectors, whilst in others they have been applied
economy-wide (for instance in Brunei Darussalam, Thailand and Myanmar). A number of
countries have attempted to reduce the reporting burden for enterprises, for instance in Lao
PDR and the Philippines, where the due date for the tax report was extended.
Direct financial assistance
To help enterprises address their immediate working capital requirements, all ten AMS
have extended direct financial assistance facilities.
These facilities have typically taken the form of loan and guarantee schemes. They have
largely been rolled out by national SME agencies or analogue institutions, and have been
designed to ease financing conditions for enterprises.7 In a number of cases they have
targeted at specific sectors – a loan scheme in Myanmar, for example, is targeted at the
6
Including VAT, corporate tax, and social security contributions, among others.
7
For instance through reduced interest rates or extended payment deadlines.| 15 country’s textile sector, whilst one in Cambodia is targeted at the country’s agricultural sector. A few AMS have also developed more sophisticated mechanisms, designed to address the specific crisis-related needs of enterprises and tailored to their size. In Malaysia, the country’s Central Bank (Bank Negara Malaysia, or BNM) has established a Special Relief Facility worth MYR 10 billion (BNM, 2020). This vehicle offers guarantees to financial institutions (both commercial banks as well as development banks) that are willing to extend working capital loans to MSMEs at a rate of up to 3.5% per annum inclusive of guarantee fees. The scheme also contains a clause obliging banks to offer a moratorium period of 6 months. In addition, the government is exploring ways to broaden moratoriums on MSME loans across the banking sector as a whole, encouraging banks to consider restructuring and rescheduling (R&R) business loans. Other countries have established similar schemes. In Singapore, for instance, a Temporary Bridging Loan Programme has been extended to all sectors, providing loans of up to SGD 5 million, and an Enterprise Financing Scheme Working Capital Loan programme has been extended to help enterprises with their working capital needs. In Thailand, the Bond Stabilisation Fund has been extended to provide bridge financing to good-quality businesses owning bonds that are due to mature in 2020-2021. In a number of cases, however, direct financial assistance has taken the form of grants and subsidies. At least four AMS offer such measures; typically for vulnerable sectors or smaller companies, in order to encourage workforce retention. In Brunei Darussalam, for instance, MSMEs can claim up to 25% salary subsidy for their Bruneian employees with salaries less than BND 1 500 for a period of three months, whilst in Indonesia a voucher programme has been extended to around one million MSMEs. Information and guidance One of the most helpful measures that governments can provide during periods of economic uncertainty and a sharp economic shock is information and guidance. A number of AMS have rolled out services to advise businesses on how to adjust their operations during the crisis, and to raise awareness of available support schemes. Singapore, for instance, developed a Business Continuity Guide, which advises enterprises on how to plan for and manage potential operating risks that could arise due to COVID-19. Indonesia, meanwhile, has established a hotline for MSMEs and Cooperatives, which is managed by the Ministry of Cooperatives and MSMEs. On the demand side, a number of AMS are also encouraging domestic consumers to source products and services from local MSMEs. Temporary redundancy and wage support measures One of the biggest threats of the COVID-19 crisis is that it will lead to large-scale layoffs, severing income generation opportunities for a large number of people and contributing towards rising inequality. The situation in Southeast Asia is particularly delicate given high
16 |
levels of informality, thin social security nets, and structural dependence on highly labour-
intensive sectors such as garment manufacturing, agrofood, and tourism and hospitality.
Accordingly, all AMS have implemented programmes to address temporary redundancies,
but only seven have extended concrete financial support programmes, and these are often
restricted to a small number of sectors. In Malaysia, the government has extended a range
of support measures, including the Employment Retention Programme – which provides
financial assistance to employees and employers fulfilling certain criteria; the Employer
Advisory Services Programme – which has enabled over 480 000 SMEs to defer social
security payments for their workers; and a Wage Subsidy Programme – which provides
assistance to enterprises, conditional on retaining employees for three months afterwards.
In the Philippines a wage subsidy has also been introduced, and the country’s social
security system was mobilised to cover unemployment benefits for dislocated workers. In
Thailand, meanwhile, employees covered by national social insurance will receive
compensation of 62% their daily wages for up to three months.
A number of countries have directed temporary redundancy and wage support towards their
most vulnerable citizens. Thailand, for instance, through its Economic Relief Loan
Programme, supports the social rehabilitation of the country’s lowest-income earners. Viet
Nam, meanwhile, is offering social benefit payments to select groups between April and
June 2020, including individual business households with yearly revenues below VND 100
million who have been obliged to temporarily close down. In Indonesia, informal workers
can also benefit from support through the Pre-employment Card Program, which offers
cash aid and a training subsidy for unemployed workers and micro and small business
owners. The programme aims to reach 5.6 million individuals.
A small number of AMS offer support programmes for the self-employed. In Brunei
Darussalam, these workers can benefit from new COVID-19-related schemes allowing for
bank loan repayment deferral and the restructuring of credit card debt into a loan of up to
three years. In Singapore, SGD 100 was extended to eligible self-employed individuals
during the lockdown period. The country has developed other programmes to support self-
employed workers. These include the SEP Income Relief Scheme (SIRS), whereby eligible
Singaporean will receive SGD 1 000 a month for nine months, and the Point-to-Point
Support Package, whereby taxi and private hire car drivers will receive SGD 300 per
vehicle per month until the end of September 2020. In Thailand, the government is
providing THB 5 000 compensation to a cross-section of low-income earners that have
been temporarily obliged to cease economic activity, including own account workers. This
programme will run for three months, and aims to reach nine million people.
2.2 Longer-term structural measures
The pandemic has pushed many governments and enterprises to adapt rapidly to unfamiliar
challenges and new ways of working. As they struggle to navigate the “new normal,” many
may be more receptive to innovate and engage in previously-difficult structural reform. As
physical interactions are curtailed, for instance, many entities may select to accelerate the| 17 adoption of digital technologies. A growing awareness of supply chain dependencies may encourage many entities to diversify their sources of supply and demand. Escalating levels of public debt may encourage governments to enact “smarter” regulations and to modernise taxation, public spending and social protection systems. These efforts are commendable and likely to ensure that policy measures are more cost-effective and impactful over the long term. In ASEAN, structural measures have largely focused on four angles: i) enterprise formalisation; ii) workforce training; iii) enterprise digitisation; and iv) new market access. Formalisation Some AMS are utilising support measures to promote formalisation. In Malaysia, for instance, the Special Prihatin Grant (GKP) has been designed to concurrently promote company formalisation, and is also available for micro enterprises. A scheme for the self- employed in Singapore has been designed in a similar way. Workforce training It is widely expected that the current crisis will accelerate the adoption of new ways of working and demand for new skill sets. Accordingly, a number of AMS have begun to offer training programmes targeted at upskilling and reskilling temporarily displaced workers. In the Philippines, for instance, the Technical Education and Skills Development Authority has initiated a PHP 3 billion programme to upskill and reskill temporarily laid off workers, including through online courses. Thailand is offering special training courses for 40 000 workers affected by the pandemic. In Singapore, the SGUnited scheme offers traineeship programmes for fresh graduates and training courses for jobseekers. The latter aims to reach around 30 000 individuals and provides an allowance of SGD 1 200 allowance per month for the course duration (6-12 months in total). Digitisation Likewise, it is expected that the crisis may accelerate the adoption of digital technologies in many enterprises, and the adaptation of business models to make this possible. The push is twofold: first, social distancing measures have obliged many enterprises to consider the benefits of automation and other digital tools; and, second, closed markets are encouraging many enterprises to move online. Utilising this juncture, a number of AMS have extended advice and training to enterprises on how to use e-commerce platforms, how to promote and describe their products or services better, and how to adjust their business models. This is the case in Brunei Darussalam, Indonesia, the Philippines, Singapore and Thailand, and has typically been provided through online platforms. In Singapore, the government has launched Food Delivery and E-Commerce Booster Packages, which aim to support local F&B establishments and retailers to bring their businesses online and diversify revenue streams. In Thailand, meanwhile, the government has helped develop an online platform that connects technology start-ups to pharmacies, in order to help local pharmacies provide
18 |
consultations virtually. In Brunei Darussalam, the government has launched an e-
commerce platform in order to help its enterprises market local products and services.
Other similar processes have also pushed for innovation around smart urban farming,
robotics, artificial intelligence and the Industrial Internet of Things (IIoT). This trend also
creates additional demand for new kinds of skills and enhanced training and capacity
building support. These initiatives is an important opportunity for the region as it can boost
productivity and accelerate the competitiveness of the region in the global stage.
A number of AMS are also providing support to automate. Malaysia, for instance, has
rolled out a special SME Automation and Digitalisation facility, which provides SMEs with
lower interest rates to purchase related equipment. The facility ties into its overarching plan
for digital transformation by obliging beneficiaries to complete a round of digitalisation
training and certification, which covers aspects of digital transformation, cybersecurity and
new market expansion. Thailand has also been pushing for operational innovation in
traditional industries through new technologies such as artificial intelligence and the
Industrial Internet of Things (IIoT). As such, it is co-developing additional platforms to
connect technology start-ups with more traditional industries such as agrofood in order to
promote innovative practices such as smart urban farming.
New market access
The crisis has underlined the danger of depending too much on any one partner to source
and supply goods and services. This is particularly the case for companies wound tightly
into global supply chains, and even greater for those companies that produce a relatively
limited range of goods and services. Many countries are therefore exploring how they can
help their domestic firms to access new markets. In the Philippines, for instance, companies
are being helped to identify new supply sources and markets for goods. In a number of
countries, efforts are being made to expand MSME access to public procurement contracts.
In others, such as Indonesia, trade facilitation efforts are being ramped up.
2.3 An overview of sector-specific measures
Measures to tackle the spread of COVID-19 have hit certain sectors particularly badly, and
this has been recognised in public policies. A large number of AMS have extended targeted
support measures to their garments and footwear, tourism and hospitality, transportation,
and agrofood sectors, among others.
Tourism and hospitality
The tourism and hospitality sector is one of the worst hit by the crisis. According to the
World Travel and Tourism Council, fallout from the pandemic could result in a loss of 75
million jobs in the travel and tourism industry worldwide, with 49 million of these in Asia-
Pacific (WTTC, 2020). In response, all AMS have extended policy support to their tourism
and hospitality sectors. These measures include tax deferrals (Brunei Darussalam,| 19 Cambodia, Indonesia, Lao PDR, Singapore and Viet Nam), low interest rate loans (Myanmar and Singapore), and comprehensive support packages for the entire sector (Indonesia, Malaysia and the Philippines). Garments and footwear In many countries, the garments and footwear sector accounts for a significant share of GDP, and has been particularly hit by the crisis. The sector has faced shocks on both the supply and demand side – nationwide lockdowns in high-income countries have curtailed demand from major fashion brands, and disruptions in supply chain connectivity have left many firms unable to access key inputs. In addition, it is difficult to comply with social distancing rules in a setting where production depends on workers operating in close proximity. As a result, a number of countries have extended targeted support programmes. In Cambodia, a six-month tax holiday has been announced for textile and garment factories, as well as a relief package for garment workers who are forced to take leave. In Myanmar, garment manufacturers have been offered low-interest rate loans. In Viet Nam, a number of tax support initiatives have been extended to enterprises in the textile sector. Manufacturing Manufacturing activities have been dealt a considerable blow during the crisis, due to slumps in demand, breakdowns in supply chain connectivity (particularly vis-à-vis China), and confinement rules that obliged many factory workers to stay at home. Countries with large manufacturing sectors such as Viet Nam, Myanmar, Thailand and Indonesia have offered a number of stimulus measures to support the sector. In Indonesia, income tax rules were relaxed for workers in 19 manufacturing sectors for a period of six months. In Myanmar, manufacturing enterprises were offered low interest rate loans. In Viet Nam, enterprises in select industries, including manufacturing, have been offered five-month deferrals on interest payments and tax duties. Transportation, particularly aviation The pandemic is taking a devastating toll on the global aviation industry. The International Air Transport Association has announced that international airline passenger demand fell by 55.8% in March 2020 relative to the previous year. Airlines in Asia Pacific were particularly affected – they experienced a 65.5% drop in traffic relative to March 2019 (IATA, 2020). This will affect not only large airline freights but also the entire chain of subcontractors, many of which are SMEs. AMS have implemented a range of measures to support the sector. These include direct financial support in the case of Indonesia and the Philippines, deferral of taxes and loan interest payments in Malaysia and Viet Nam, and the facilitation of procedures to reduce logistics costs in Viet Nam. Singapore has also extended an enhanced jobs support scheme to the sector, as well as an Aviation Sector Assistance Package, which aims to provide immediate cost relief to affected enterprises in the sector, including airline companies, ground handling agents and the cargo industry.
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Agrofood
The agrofood sector has faced particular pressure since the outbreak. Confronted by supply
chain blockages and limited access to labour, the industry has struggled to maintain
production. This is compounded by the fact that many agrofood enterprises are SMEs, and
thus have less leeway to remain operational for an extended period of time without financial
assistance. So far, most AMS have managed to broadly sustain food supply, assisted by
special exemption schemes as well as the operational agility of these businesses.
Notwithstanding, the food value chain contributes around USD 500 billion of economic
output to the region, or around 17% of ASEAN’s total GDP (PWC, 2020), and it provides
a fundamental good. As a result, specific measures have been directed towards the sector
in most AMS, for instance loan interest rate deferrals and tax exemptions.| 21
3. International policy learnings and suggestions on ways forward
Most AMS have responded quickly and commendably to the challenges posed by COVID-
19; extending a raft of measures to support their business sectors. A review of these
measures and a consideration of efforts in other jurisdictions suggest some ways forward
for ASEAN. Some of these suggestions are directed at shorter-term stimulus measures,
whilst others are directed at longer-term structural measures.
3.1 Shorter-term stimulus measures: Particular considerations
Many shorter-term stimulus measures have been rolled out at speed and come with a
sizeable cost. For this reason, policymakers could consider a number of principles in their
design and implementation, namely:
There is a need for close coordination and cooperation between different
government agencies in order to ensure a rapid and robust response
Since the crisis is affecting many different areas of the economic machine at once, there is
a need to ensure information exchange and consensus building across multiple government
agencies. This is often facilitated through the establishment of a high-level committee or
task force, as we have seen in countries such as Malaysia and Myanmar.8 This body would
typically comprise representatives of the country’s Ministry of Economy (or its analogue),
the country’s Ministry of Finance, and its Central Bank, among others. It can help to collate
information, avoid inefficiencies, and properly plan fiscal stimulus packages, as well as the
breakdown of support from different institutions.
Close consultation with other stakeholders, particularly the private sector, is key
Government should engage in dialogue with a variety of stakeholders in order to better
understand what kind of support is needed and the level of engagement that is necessary.
Enterprise development and export promotion agencies, industrial associations, trade
unions, state funded banks and commercial bank associations should work together to
identify the scale and scope of support needed, the types of enterprise that should be
targeted9. Business associations should be encouraged to run regular enterprise surveys and
to share this information with other stakeholders, particularly on perspectives of the policy
support measures that would be most useful. Industry associations should also be brought
8
In Malaysia, a Unit for the Implementation and Coordination of National Agencies on the
Economic Stimulus Package (LAKSANA) has been established. In Myanmar, the Control and
Emergency Response Committee on COVID-19 was setup on March 30 2020.
9
For instance, whether this should be enterprises occupying a central position in important
production networks, or those that make a particular contribution to employment.22 |
in to help draft guidelines for enterprises on how to operate in the “new normal,” as well
as other forms of support.
Public support should be targeted, adequate and limited in time
All AMS have provided stimulus packages for businesses, though the scale and scope
varies considerably. Given the large numbers that will be affected by this crisis, it will be
essential to allocate limited resources wisely. Most AMS have strengthened their support
to the private sector over time, with increased scope, scale, and duration periods. This
approach can help policymakers to ascertain where the greatest need is, and to ensure that
support measures are well-designed. For instance, crisis management measures should
typically be implemented with sunset clauses attached. Policymakers should endeavour to
leverage the private sector in order to reduce public expenditure and longer-term
dependency on government support. In Australia, for instance, the government has recently
announced a relief programme for commercial tenants. This provides commercial property
owners with various benefits (for instance reduced charges, land tax and/or deferred loan
payments) if they agree to comply with a mandatory code of conduct to support SMEs
affected by the crisis. The code covers 14 principles, including an obligation that: i)
landlords should not terminate leases for non-payment of rent during the pandemic or a
reasonable recovery period; and ii) landlords should offer reductions in rent based on their
tenant’s reduction in trade during the pandemic and a reasonable recovery period.
Governments should consider targeted programmes for the most vulnerable
Stay-at-home restrictions will deny some of the most vulnerable in society their opportunity
to earn a regular income and cover their basic needs. Such households may therefore need
to receive financial support in order to help them access these necessities – particularly in
countries where large swathes of the population are not covered by social protection
systems. Many are likely to be informal micro enterprises. Targeted assistance could take
the form of direct cash transfers or deferrals of tax and / or mortgage repayments. These
measures could also help to boost local consumption and provide stimulus for local
retailers, which are often micro-enterprises. The governments could consider setting aside
additional funding for unemployment insurance payments in the event that affected
MSMEs are forced to lay off employees.
Efforts should be made to ensure that new programmes are clearly communicated
Without clear communication, many policy initiatives will be rendered ineffective. Many
businesses, especially MSMEs, may be unaware of the support measures available to them,
and this could particularly be the case where new schemes are rolled out quickly and
businesses are struggling to fight an economic shock. Providing clear information online,
promoting new schemes, and providing hotlines or chatbots, can go a long way to ensuring
that new schemes reach their targeted beneficiaries. They could also help businesses to
navigate the crisis by providing information on the epidemic, disease prevention methods,
as well as information on how to access personal protective equipment (PPE) and testing| 23 facilities. The extension of updated and clear information to local law enforcement authorities would ensure that they enforce the “correct” rules – for instance on business closure and confinement policies. Singapore’s Business Continuity Planning guide was a good example of how policymakers can communicate the right messages and help firms adjust to an evolving situation. Stimulus packages should include financial support measures for enterprises MSMEs tend to be more financially fragile and cash-strapped when market demand is down. Therefore emergency financing programmes targeted at MSMEs should typically play a role in any stimulus package. These programmes could include the provision of loans and grants, the extension of guarantees to support bank lending, subsidies, and/or the deferral or wavering of taxes and fees (Box 1 presents an overview of schemes enacted in a handful of OECD and partner countries). Box 1. Examples of financial support measures for SMEs related to COVID-19 Grant schemes In Australia, the Boosting Cash Flow for Employers scheme initially provided grants of up to AUD 25 000 grant to SMEs, with a minimum tax-free payment of AUD 2 000 for eligible businesses (those with turnover under AUD 50 million that employ staff). A new government package announced on 22 March raised this tax free cash payment to AUD 100 000 and expanded its eligibility criteria to include not-for-profit charities. Western Australia also offers SMEs with payroll between AUD 1 million and AUD 4 million one- off grants of AUD 17 500. In Belgium, SMEs can apply for grants amounting to between EUR 1 300 and EUR 1 600 per month. The municipality of Brussels also offers EUR 4 000 grants for businesses that have had to shut down during the crisis (EUR 2 000 for hairdressers). The government of Wallonia, meanwhile, provides EUR 5 000 grants to businesses that have had to close their doors and EUR 2 500 for companies that have had to adjust their opening hours. Flanders provides grants of EUR 4 000 payment for businesses that have to temporarily shut down. In France, small companies and self-employed workers can apply for compensation of EUR 1 500 per month, if their turnover is under EUR 1 million and drops by 70% or more. Other financial support measures In Brazil, the state-owned Federal Savings Bank is currently offering USD 14.9 billion in credit lines to SMEs for working capital, and is purchasing payroll loan portfolios from medium-sized banks and agribusiness. It has also cut interest rates on certain types of credit and offered clients grace periods of 60 days. Source: OECD (2020).
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One of the most popular measures for central banks is to take a number of monetary policy
measures such as cutting interest rates, relaxing bank reserve requirements, and increasing
the size of refinancing schemes. Yet this might not be sufficient to facilitate access to
finance for businesses, particularly MSMEs. In order to stimulate financing to these
entities, many governments set up guarantee programmes, whereby they share the risk of
default with the lender and the borrower. Since guarantees are only paid out in the event of
default, these schemes generally have greater additionality, reaching out to a higher number
of beneficiaries. During the current crisis, however, guarantee schemes have not always
proved effective.
Stimulus measures should be implemented with their longer term impact in mind
Stimulus measures implemented now can have a deep impact over the long term, and these
potential consequences should be carefully considered. Poorly targeted and calibrated
schemes could lead to rapidly escalating public debt, for instance. Measures to reduce
regulatory and other requirements for MSMEs could reduce protection for investors and
consumers. Efforts to accelerate enterprise digitisation without parallel work to strengthen
data security and privacy laws could leave many vulnerable to scams and phishing
campaigns. They could also have positive longer term impacts. A number of AMS, for
instance, have used COVID-19-related support schemes to promote formalisation.
3.2 Longer-term structural measures: Particular considerations
Longer-term structural measures will have an important impact on how quickly and
completely countries can emerge from the crisis. The importance of the challenge is rivalled
only by its difficulty: policymakers are obliged to implement policies for a future that is
highly uncertain, with very little clarity on how the crisis will unfold. Policymakers could
consider a number of principles in the design and implementation of interventions, namely:
Consider measures that may reduce negative economic impact over the long run
Policymakers could consider measures that would reduce economic scar tissue in the long
run. For instance, a number of countries have encouraged enterprises to reduce the working
hours of their employees rather than lay them off entirely. This would hopefully enable
them to pick up more hours as the economy begins to recover, and ensure that they retain
their skills and knowledge of the business. Germany has been a firm proponent of this
approach. A number of countries have calibrated their large-scale programmes, and this
may help them to avoid an escalation of costs, and potentially serve as a good practice
example for AMS. Singapore, for instance, has developed a tiered wage support
programme for enterprises, which runs across all sectors. It extends 75% of wage costs to
enterprises in sectors that were particularly affected by travel restrictions and/or safe
distancing measures, such as aviation, hospitality and tourism; 50% of wage costs to linked
sectors such as food services, retail and land transport; and 25% to enterprises operating in
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